This week in regulation


The Speed Read

  • FCA publishes its 2018/19 Business Plan and Sector Views
  • How the FCA measures the impact of its interventions
  • Regulated fees and levies 2018/19 consultation opened
  • FCA points to cryptocurrency regulation
  • Post-PSD2 Payments: Evolution or Revolution?

FCA publishes its 2018/19 Business Plan and Sector Views  

The FCA has released its annual Business Plan and Sector Views, which outline the regulator’s key concerns and planned activity for the year ahead.

Issues once thought to be sector-specific are now being considered across the whole industry, meaning firms can no longer afford to view their sector in isolation. Download TCC’s analysis of this key document for insight into its potential impact on the industry and guidance on how to respond effectively.

Short on time? Get the headlines and key points in our easy to digest executive summary.


How the FCA measures the impact of its interventions

In conjunction with the publication of its Business Plan and Sector Views, the FCA has released a discussion paper outlining its approach to measuring the impact of its interventions using ex-post evaluation.

Ex-post evaluation is just one of the tools the FCA uses to assess the impact of any intervention, with a focus on quantifying that impact. It also helps the regulator improve its decision making and provides a strong evidence base for assessing the proportionality of regulation or for repealing ineffective rules.

Ex-post evaluations focus on identifying the market-wide impact, rather than firm-specific effects of regulatory change. The regulator has committed to undertaking one ex-post impact evaluation a year, based on feedback it received in response to its Mission consultation. Currently, three ex-post impact evaluations are underway as part of a pilot scheme: the inclusion of additional benchmarks in the regulatory regime; the introduction of guaranteed asset protection (GAP) insurance remedies; and the lowering of barriers to entry for retail banks in 2013.

When selecting evaluations, the FCA will use the following criteria:

  • Whether enough time has elapsed for change to have occurred;
  • The scale of the intervention;
  • Whether there was uncertainty about the outcomes at the time of implementation;
  • If undertaking an evaluation is likely to provide lessons to support future work; and
  • Whether sufficient data is available or readily accessible.


Regulated fees and levies 2018/19 consultation opened

The FCA has opened a second consultation into 2018/19 regulated fees and levies, following an initial consultation in November 2017 (CP17/38). This consultation sets out how the regulator intends to raise the necessary fees and levies to fund the:

  • FCA – the FCA’s annual funding requirement for 2018/19 is £543.9m, an increase of 3.2% on the previous year;
  • Financial Ombudsman (FOS) – the FOS general levy is £24.5m, which will be allocated between industry blocks in a similar way to previous years;
  • Money Advice Service – the total budget for the Money Advice Service is £83.5m, split between the costs of providing money and debt advice;
  • Pension Wise – the required funding for Pension Wise is currently estimated to be £20.3m, although this may be revised when the pension guidance levy rates are finalised;
  • Single Financial Guidance Body – to fund the creation of this new body the FCA has been instructed to raise £3.6m, which will be recovered in proportion to the existing levies of the services it is designed to replace; and
  • Illegal money lending (IML) expenses of HM Treasury – this has currently been set at £5.6m, but may be subject to change.

The consultation also includes feedback on the proposals contained within CP17/38, including:

  • Adopting the PRA’s revised tariff data for insurance firms;
  • Amending the definition of income for consumer hire agreements;
  • Introducing mandatory invoicing from 2019/20; and
  • Amending the methodology for collecting the Money Advice Service levy.


FCA publishes statement on requirements for firms offering cryptocurrency derivatives

Cryptocurrencies and cryptocurrency-related assets are not currently regulated by the FCA, unless they form part of another regulated product or service. However, cryptocurrency derivatives do have the potential to be financial instruments under MiFID II. Therefore, firms involved in regulated activities involving cryptocurrency derivatives must ensure they are compliant with all relevant FCA and EU rules.

It is likely that all firms undertaking regulated activities in derivates that reference cryptocurrencies will require FCA authorisation, including:

  • Cryptocurrency futures;
  • Cryptocurrency contracts for difference (CFDs); and
  • Cryptocurrency options.

Firms are reminded it is their responsibility to ensure they have the appropriate authorisation and permissions to undertake any regulated activity. Engaging in market activity without the necessary authorisation is a criminal offence. Regulated firms operating without the appropriate permissions may be subject to enforcement activity.


Post-PSD2 Payments: Evolution or Revolution?

Karina McTeague, Director of Retail Banking Supervision recently provided some interesting insights into the regulator’s view of PSD2 and Open Banking. We bring you the highlights of her speech.

PSD2 gives consumers the option of sharing their data to take advantage of the payment initiation service (PIS) and account information service (AIS), so it’s important they are made aware of the options available to them.

The range of firms the FCA has authorised for the two newly regulated activities (account information and payment initiation services) include:

  • Authorised consumer credit firms looking to extend the scope of credit reports and scores;
  • Existing firms involved in the production of consumer-facing financial dashboards;
  • Service providers looking to assist SMEs with financial forecasting and credit transfers; and
  • New FinTech applicants.

Ms McTeague also outlined the FCA’s expectations of all regulated firms within the payments eco-system, including:

  • Having fair treatment of customers at the heart of the business;
  • Working to realise the potential benefits of the newly introduced payment initiation service and account information service;
  • Maintaining an awareness of their broader legal obligations, particularly regarding consumer and data protection;
  • Helping consumers understand and take steps to protect themselves from the risk of fraud; and
  • Providing consumers with balanced and clear information.

The regulator recognises the current uncertainty around certain elements of EU regulation as the industry awaits the Regulatory Technical Standards on strong consumer authentication and common and secure communication. However, it still expects firms to continue working in a manner that facilitates access, improves security and drives innovation.

Ms McTeague concluded by saying the two key words that characterise PSD2 are opportunity and trust. Successfully harnessing the opportunities brought about by PSD2 depends on effectively managing the inherent risks. Arguably the best way to do this is through industry cooperation and we are already beginning to see evidence of this.

It also presents an opportunity for firms to demonstrate their trustworthiness to consumers. Given the interlinked nature of the payments eco-system, if the reputation of one firm is compromised it has a knock-on effect on the others. Therefore, it is in the best interest of everyone within the market to work together to deliver good customer outcomes and maintain market integrity.

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